• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • SCB YouTube
  • Login
  • Subscribe
  • Logout
  • My Profile

  • CORONAVIRUS
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management (Big Data/IoT/Blockchain)
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Supply Chains in Crisis
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • REGIONS
    • Asia Pacific
    • Canada
    • China
    • Europe
    • Latin America
    • Middle East/Africa
    • North America
  • THINK TANK
  • WEBINARS
    • On-Demand Webinars
    • Upcoming Webinars
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » Dell, GENCO Take the Plunge Into Vested Outsourcing

Dell, GENCO Take the Plunge Into Vested Outsourcing

December 20, 2013
Robert J. Bowman, SupplyChainBrain

All outsourcing relationships are not alike. Just because two companies have agreed on a transfer of services doesn't mean they're functioning as true partners - or that they'll stick together for the long term.

Business conditions are constantly changing. An outsourcing deal that made sense at the time it was signed could lose its relevancy over the years. So it was with Dell Inc. and GENCO.

The companies had a good history together. GENCO began expediting Dell's returns and repairs in 2005. Four years later, Dell turned over its entire North American remanufacturing operations to GENCO. The deal covered testing, remanufacturing, repair and refurbishment of desktops, notebooks, servers and storage systems, all out of a 298,000-square-foot facility in Lebanon, Tenn.

The contract was set to run for three years, a long time by Dell's procurement policy standards back in 2009. The deal was transaction-based, setting a "price per activity," while requiring GENCO to uphold strict service levels.

Toward the end, the relationship began to fray, as Dell placed increasing pressure on GENCO to reduce costs without compromising on service. Even then, Dell wasn't satisfied with the vendor's commitment to cost reduction. The putative partners reached a moment of decision: either scrap the relationship, or try a new approach.

What they came up with was the concept of "vested" outsourcing. The word describes a partnership in which both sides share in the risk and reward. It required a much tighter linkage than was present in the previous deal between Dell and GENCO.

Several events triggered the decision, most notably a chance for Dell to work with experts at the University of Tennessee, especially supply-chain consultant and educator Kate Vitasek, who pioneered the notion of vested outsourcing. "She brought us a pretty far-reaching concept," says Robert McIntosh, Dell's executive director of global reverse manufacturing for the Americas. 

Dell Had Doubts

At the outset, Dell doubted its ability to embrace the idea. The company had been wedded to a model that was sharply focused on the price of services.

"I wasn't quite sure we were going to be able to do it," says McIntosh. Nevertheless, Dell and GENCO embarked on an 18-month effort to learn just how vested outsourcing worked.

McIntosh was understandably nervous. Having spent six years in Dell's procurement organization, he wasn't sure that the parties could reach the necessary level of trust in one another.

"I probably wasn't the first one to stand in line for the change that we had to undergo," he says. "But as I learned more, I knew who we were dealing with on the other side of the table. It made the commercial transaction go a lot easier."

Guiding the journey were the "five rules" of vested outsourcing relationships:

  • Focus on outcomes, not transactions,
  • Focus on the what, not the how;
  • Agree on clearly defined and measurable outcomes;
  • Optimize pricing model incentives for cost-service tradeoffs, and
  • Build a governance structure that creates insight, not just oversight. 

There were specific goals to be met as well. Following its scrutinizing of the vested concept, and the reading of many case studies about prior successes, Dell focused on three main areas: quality, customer experience and cost.

To kick things off, Dell and GENCO looked for ideas that would fuel an entrepreneurial spirit - dubbed "Ponies," in vested-outsourcing parlance. Key questions included how much money the partners could save by working together, and how they could boost overall efficiency.

McIntosh says Dell brought in participants from all parts of the organization: supply chain, legal, finance, corporate. So, too, did GENCO. "They basically matched us peer for peer, as we went through this journey together to get comfortable with the change that we were about to undergo," he says. 

Out With the SLAs

The old contract was burdened by dozens of service-level agreements (SLAs) that didn't reflect the new way of thinking. At least 30 of them were discarded, leaving the companies with half a dozen key performance indicators (KPIs) that directly impacted on the goals laid out from the start.

Next came development of a joint pricing model that would benefit and reward both parties, assuming they met the desired outcomes. Out went the "price-per-activity" approach, in favor of one that tracked loss per box and the overall profitability of both companies.

Today, says McIntosh, "the contract's probably a little thinner, but both of us are more invested in making sure the relationship works, not just for us but also for our customers."

All of that was prelude to the eventual signing of a new contract. Guiding the parties in that effort was a "requirements road map." It's designed to answer a number of key questions, including who's responsible for the data underlying the chosen metrics, where it's coming from, how often it's collected and how the metrics are calculated. Dell refers to this document as "the heart of the contract."

Even the most carefully planned relationship can fall apart if the parties don't establish a structure for ongoing governance and oversight. Dell and GENCO assigned individuals at multiple levels of management, from the executive suite to the front lines, to monitor performance and keep both organizations informed. They meet weekly, monthly and quarterly, with the last generating detailed status reports for upper management. At the same time, they work to identify opportunities for future improvement.

The results are evident. Dell and GENCO claimed "multi-million dollars" in benefits after just two quarters of the vested arrangement. Dell's customer satisfaction reached an all-time high, cost per box was reduced by 32 percent, and scrap was cut by 62 percent. GENCO, meanwhile, having shed the yoke of price per activity, has seen a tripling of profit margins resulting from improvements in Dell's reverse-logistics processes, according to the companies.

"It sounds almost like a fairy tale," says McIntosh, "but what it really shows is that when we partnered together and focused on what the end-customer wanted "¦ we were able to achieve some goals and results that were above our expectations."

Resource Links:
Dell
GENCO

Keywords: supply chain, supply chain management, supply chain planning, inventory control, inventory management, vested outsourcing, retail supply chain, sourcing solutions

RELATED CONTENT

RELATED VIDEOS

Reverse Logistics Product Lifecycle Management Sales & Operations Planning Supply Chain Finance & Revenue Management Sourcing/Procurement/SRM Supply Chain Planning & Optimization Supply Chain Visibility Business Strategy Alignment Global Supply Chain Management Quality & Metrics Order Fulfillment High-Tech/Electronics
KEYWORDS Business Strategy Alignment Dell GENCO Global Supply Chain Management High-Tech/Electronics inventory control Inventory Management order fulfillment Product Lifecycle Management Quality & Metrics retail supply chain Reverse Logistics Sales & Operations Planning SC Finance & Revenue Management SC Planning & Optimization Sourcing Solutions Sourcing/Procurement/SCM supply chain Supply Chain Analysis & Consulting Supply Chain Management Supply Chain Management: High-Tech/Electronics Supply Chain Planning Supply Chain Visibility vested outsourcing
  • Related Articles

    Dell Embraces Vested Outsourcing

    Dell & Mondelez: Making Vested Outsourcing Work Well Beyond Expectations!

  • Related Directories

    Parsyl

Robert J. Bowman, SupplyChainBrain

Podcast | Stitching Together the Physical and Digital Supply Chain

More from this author

Wake up to live
“Supply Chains in Crisis”
updates and the latest Supply Chain News!

Subscribe to our Daily Newsletter

Timely, incisive articles delivered directly to your inbox.

Popular Stories

  • Medical drone

    Amazon May Be Proof That Delivery Drones Aren’t Practical

    Last Mile Delivery
  • Warehouse worker

    Why Higher Wages Alone Won’t Solve the Supply Chain Labor Shortage

    Warehousing
  • Adidas

    From Sneakers to Teslas, China Lockdowns Upend Global Supply Chains

    Coronavirus
  • SEC building seal

    Get Ready for the Next Phase of ESG: Mandatory Corporate Due Diligence

    Regulation & Compliance
  • ESG Guide

    Confronting the ESG Imperative in Supply Chains

Digital Edition

Scb may 2022 sm

2022 Supply Chain ESG Guide

VIEW THE LATEST ISSUE

Case Studies

  • 3PL Doubles Productivity With Robots to Fulfill Medical Supply Orders

  • E-Commerce Company Cuts Order Fulfillment Time by 40%

  • Fashion Retailer Halves Fulfillment Time With Omichannel Automation

  • Distributor Scales Business by Integrating Warehouse Automaton Software

  • Fast-Growing Fashion Brand Scales E-Commerce Fulfillment With Whiplash

Visit Our Sponsors

Yang Ming Alithya Barcoding
Blue Yonder BNSF Logistics Generix
GEP GIB USA GreyOrange
Here Honeywell Intelligrated Inmar
Keelvar Kinaxis Korber
Liberty SBF Locus Robotics Lucas Systems
Nvidia Old Dominion Parsyl
Redwood Logistics Saddle Creek Logistics Schneider Dedicated
Setlog Holding AG Ship4WD Shipwell
Tecsys TGW Systems Thomson Reuters
Tive Trailer Bridge Vecna Robotics
Whiplash    
  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • On-Demand Webinars
    • Upcoming Webinars
  • Digital Offerings
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • Newsletters
  • Resources
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
    • 100 Great Partners Form
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us
    • Data Sharing Opt-Out

All content copyright ©2022 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing